Formation of the extensive gas exchange surface by alveolar type 1 cells is perhaps the most important event in late lung development. The proposed studies address questions about regulation of the molecular phenotype, function, and formation of these cells. Type 1 cells are highly specialized for gas exchange and form about 95% of the alveolar surface. Failed or delayed formation of these large, highly attenuated cells impairs gas exchange in neonates and in injured lungs of adults. Type 1 cells are unusually susceptible to injury by various agents including the high concentrations of oxygen used therapeutically to support premature infants; thus, understanding how to control and accelerate type 1 cell formation and differentiation is an important long-term goal of this research. Three Specific Aims are proposed. The first is to characterize the abnormal proliferation of peripheral lung epithelial cells observed in animals with a targeted deletion in T1alpha, a type 1 cell specific gene. Whereas normal peripheral lung cells temporarily stop dividing around the time of birth, proliferation continues in these null animals. The proposed studies will test the relationships between T1a expression and cell proliferation and differentiation in the peripheral lung and will identify candidate cell cycle regulatory genes that account for sustained proliferation. The T1a gene will be deleted in adults to test whether the abnormal proliferative response is age-independent or unique to fetal/newborn lung. Specific Aim 2 will test the role of promoter methylation in restricting gene expression to specific epithelial cell types, using T1a and SP-B as representative type 1 and type 11 cell genes. Specific Aim 3 will identify the cell of origin and the role of T1a in the engraftment of bone marrow-derived cells in neonatal lung where they display the morphology and molecular phenotype of type 1 cells. These studies will use state-of-the-art methods to explore regulation of type 1 cells, a poorly understood area of alveolar biology, but one that is critical to successful lung development.